Electric Vehicles Briefly Held a Price Advantage Over Gas Cars-But the Trend Is Reversing
Washington D.C. - For a fleeting moment this year,the total cost of owning an electric vehicle (EV) in the United States dipped below that of a comparable gasoline-powered car,thanks largely to federal tax credits and manufacturer incentives. However, industry analysts now predict this price advantage is rapidly disappearing, with EV prices expected to climb above those of internal combustion engine (ICE) vehicles as soon as next year. This shift threatens to stall the already-slow adoption of electric vehicles and complicates the Biden administration’s ambitious goals for zero-emission transportation.
The convergence of factors creating this temporary affordability-including the $7,500 federal tax credit offered under the Inflation Reduction Act and aggressive pricing strategies from automakers-is unsustainable.As automakers navigate production adjustments and the phase-out of certain incentives, the financial equation is changing for consumers. The expiration of the 30C tax credit for used EVs on January 1, 2024, and the evolving eligibility requirements for the new vehicle credit are contributing to the rising costs. Without continued financial incentives, the transition to EVs will likely slow, hindering automakers’ ability to achieve the production scale needed for profitability.
J.D. Power’s latest analysis indicates that EV prices will likely surpass ICE vehicle prices in 2025. This reversal comes after a period where EVs benefited from a unique confluence of government support and manufacturer discounts. According to J.D. Power’s senior manager of automotive forecasting, Jonathan Jominy, “in the short term, EVs will probably, at best, go sideways.”
The current situation impacts a broad range of stakeholders,including consumers considering a vehicle purchase,automakers investing heavily in EV production,and policymakers aiming to reduce carbon emissions. The Inflation Reduction Act,signed into law in August 2022,aimed to accelerate EV adoption through tax credits and other incentives. However, the effectiveness of these measures is now being questioned as market dynamics shift. While analysts remain optimistic about the long-term future of EVs, the immediate outlook suggests a period of stagnation in sales growth. Jominy concluded, “we do not believe that this is the end,” emphasizing continued long-term optimism despite short-term challenges.
